Coping with reality
In the face of economic adversity, remodelers show their resolve in creative — and profitable — ways.
The attacks of Sept. 11 triggered the most precipitous drop in the U.S. stock market since the Great Depression, dramatically decreasing personal net worth and consumer confidence and seriously aggravating what has since been identified officially as a recession.
The good news for the remodeling industry is that many people see their homes as an even more important refuge, and they’re willing to shell out money to make it more comfortable as they spend more time there. Their homes also might be the safest place to put their money as the stock market remains volatile.
The bad news is that some homeowners have decided to pull back on discretionary spending, including home improvements, in favor of holding on to cash during uncertain times.
In December, Professional Remodeler conducted a spot-check of remodeling markets across the United States. While most respondents saw a big drop in leads in mid- to late September, most have also seen a rebound in phone calls from prospective clients — in quality if not in quantity. Remodelers in areas already suffering from the dot-com bust of early 2000 report that it is still a big factor in their markets. Some of our readers have changed their sales tactics; others are more flexible about breaking projects into phases. Still others have analyzed their markets for untapped opportunities and pursued them.
The current economy might be a giant lemon, but, at least in the view of savvy remodelers, it also presents an opportunity for a lot of lemonade. Here are some of their approaches:
Take on different kinds of jobs
“We had two clients pull out of projects we thought were about to go to contract. Our phones went dead for about six weeks. But we are a diversified company with a strong commercial service division that didn’t see a ripple. I’ve created this company in this way for just this type of situation.
“Our typical jobs are $125,000 to $400,000. Beginning the last week in October, $10,000 to $30,000 jobs began falling out of the telephone onto my desk. We haven’t done an exterior repaint with trim repair in years; now we’re doing three. A past client wanted us to replace their roof with a premium shingle and all-copper metalwork, etc. And then in early November, bigger jobs began to queue up. Nevertheless, our November was the worst month in a year and a half. We still broke even, though. December should be better, and January has the potential to be the best we’ve had.”
Brad Cruickshank, CR, president
Hire newly available employees
“My business is up 35% over last year with a strong fall quarter. I am looking to find additional help. I asked our local Remodelors Council president if he knew of any general contractors who had to lay off a trusted carpenter, hoping they would be willing to ‘lend’ that carpenter to me for a while. That carpenter would be my employee for a while and go back to the other contractor when the season picks up.”
Terry Henderson, CEO
Terry’s Quality Service Inc.
“We want to take advantage of the recession to hire top people and to expand our scope of services on the assumption that the labor market will loosen up. We already have made sev-
eral strategic hires that wouldn’t have been available to us just six months ago.”
Derek Reijnen, president
Bainbridge Island, Wash.
Put more effort into marketing
“Phone calls and sales have stayed about the same. However, two people canceled their jobs during the bidding stage because of the uncertainty of the economy. They wanted to have the extra cash for necessities instead of using it for remodeling in light of the coming war. We did not salvage either job. We’ll work with the people who are comfortable investing in their homes. We’re not trying to get people to change their minds at this point.
“We are actively increasing our marketing. We have recently contracted with a marketing firm to implement a new and expanded marketing plan. A recession is when a company should be increasing its marketing rather than letting it drop.”
Chris Kassing, business manager
Kliethermes Homes & Remodeling Inc.
“We did have three large jobs put on hold or canceled. Overall the market seems to have come back for this time of year. However, people still seem a little more hesitant or cautious.
“We had started to ramp up our marketing plans as the economy showed signs of weakening back in the summer. As a result, we are increasing marketing at the appropriate time to capture more projects. We have made up a series of postcards, which are being mailed in the immediate neighborhood of other better-quality jobs. If we sign a job in a neighborhood that we like, we will target 30 to 75 homes for a series of four postcards over a period of three to six months.
“We have also stressed to all employees the need for cultivating new leads from project neighbors, making everyone responsible for job signs, business cards and referrals. By letting the field employees understand that one small job may keep them working full time versus a short week or being laid off, everyone becomes more motivated to cultivate additional business.”
Andrew Shore, president
Sea Pointe Construction
Improve communication with clients
“I was working with three prospective clients, so I called them all, and they all confirmed their intent to continue. I will finish one in December and a second in mid-January. We’re still waiting to start the third. All in all, no decrease and no increase.”
Burt Davy, CGR, president
“There is a general feeling of caution in some people — a feeling that they need to hold on to their money. Clients want to do their projects, but they need to know where their money is going and to be sure that a particular part of the purchase is really worth it. We have been explaining the reasons for our aesthetic decisions more to the client. We have been pricing the job more often during the process to keep them informed of cost changes. That’s the best way to keep the client from running away. It’s usually an unexpected price increase that causes us to lose a job. So far, so good. We are still going strong.”
Jerry Levine, president
Wentworth-Levine Architect-Builder Inc.
Silver Spring, Md.
“Within one week of the attacks, I can account for three canceled projects totaling $240,000 in lost business. For about the next three weeks, we did not take in a single lead, even though we did not suppress any advertising. Since that time, we have experienced a decline of incoming leads by almost 50%. But the quality of the leads we are getting has strengthened. It seems that only the truly interested are bothering to inquire.
“With all new potential clients, we address issues of the attacks, the economy, resulting property values, etc., upfront. We know that if we don’t, more than likely they will bring them up during the presentation as an excuse not to buy. This approach is working, based upon the amount of work we are selling despite the decrease in leads.”
Bill Simone, president
Custom Design & Construction
“I aggressively attack each new opportunity, turning immediate attention to new jobs. After the initial meeting with a client to hear about the scope of work, I immediately call in the subs and specialists and get back to the inquiring clients quickly with answers and pricing. The point is to mirror back to these clients the enthusiasm they showed by calling me. It seems to be working.”
Dave Mathews, CGR, president
Diversify, diversify, diversify
“Fewer prospective clients have been contacting us, but the quality of the leads is actually better, with a higher close ratio than typical. Only those folks who are truly serious and have planned this for some time are still in the market. Some larger projects [more than $1 million] have been canceled, but this is only with clients whose project size is too large a portion of their net worth and whose net worth was substantially reduced by losses in the stock market.
“We continue to counsel our clients to make fiscally responsible decisions, including reducing the scope of the work if they are biting off more than they can reasonably afford.
“We are actually expanding, not contracting. We have replaced all business lost since September 11 just through our normal sales process — no special effort required. We are right on target for 2002. We are starting an insurance restoration division that will roll out in January 2002, and we expect to have our light-commercial division rolled out by the third quarter of 2002. We are also expanding our existing base of high-end residential projects by increasing our geographic service area and marketing aggressively.”
Plot a steady course
“I haven’t seen a drop in sales. We are very busy now, and it looks very good for the summer. It may be the clientele that I serve (upper-middle and lower-upper income). They usually have money at hand or have already arranged for it. Not much seems to affect what they want. If they want it, they get it!”
Robert Bell, CGR, owner
“Tyson Renovations experienced a big drop in phone calls after September 11. This correlates to a decrease in sales. However, by the beginning of December things seemed to be back to normal. The only thing that I changed was to increase my networking. This had already been planned before the attacks, though, because it fits into my goals.”
Greg Tyson, owner
Phase projects or reduce their scope
“One couple, for whom we did a phase-one remodel of $240,000, e-mailed me to let me know that phase two would likely be scaled back, as his year-end bonus would not meet earlier anticipation. An elderly couple for whom we did a great addition five or six years ago want us to do four small phases totaling $20,000 to $25,000. They’re willing to let us fit the phases in between larger jobs, and there’s no better customer than a repeat customer. In general, my small firm is booked out about seven months ahead, and I’m comfortable with that.”
“We were experiencing a drop in sales before September 11 because of the dot-com crash in the San Francisco area. Phone calls are approximately 50% of what they were nine months ago, and therefore sales visits are off about the same. Large jobs are also fewer. In general, we are working harder than ever to make the best of the sales that come our way. With the questionable economy, people will lean on getting repair work taken care of first.
“Clients are telling us directly that they will be much more conservative for the time being. They were freezing any large remodeling projects until they were comfortable that there would not be more problems in the homeland. We do talk about phasing projects more than ever and reducing the scope of projects.
“Fortunately we had started a serious marketing effort in the middle of the summer. We hired a marketing/public relations person and a Web site developer. In this process we developed a new logo and made it clear to the public about our new design/build status. We had high-end postcards made up.”
Shanta Bulkin, president
“Generally the trend has been to smaller-scale projects, and to scale back plans if initial budget reviews indicate too-high costs, whereas previously the tendency with clients was to find a way to increase their budgets.
“We try to gently remind clients of the reasons they want to remodel in the first place and how the remodeling will greatly improve their satisfaction with their home. Most people seem to have two basic concerns about a remodeling project: ‘What can be done to solve our problems with this house?’ and ‘What will it cost (and how will I pay for it)?’
“After the preliminary design work and the initial budget analysis are done, they naturally focus on the costs, which are very tangible, and not much on the value to their lifestyle, which is more abstract. It’s my responsibility to remind them of the ways in which the remodel project will eliminate the irritations, inefficiencies, etc., in the home they have and that that satisfaction will last as long as they stay in the home. It seems to help get people to try harder to make the project go forward, to be positive about the possibilities even though they may be scaling back.”
Terry Streich, president
Silver Bullet Design & Build
“We had several large projects cancel earlier in the year because of the decline in the stock market, particularly tech stocks that represent much of the new wealth in the Pacific Northwest. However, since September 11 we have actually experienced a rebound in business. With the weakening economy and resulting layoffs, we were able to hire skilled craftsmen who weren’t available before.
“Our clients tend to focus on smaller projects than in the last three or four years. Several have voiced concerns over the stability of their employment.
“We use a different approach with each client, tailored to their particular situation and project. I find that it helps to have frank discussions concerning the financing of projects. During the period of runaway stock-market gains, it seemed like an insult to ask a client how they were planning to finance a project. Now we are asking the questions about their intentions on financing in a way that shows concerned caring. Low interest rates have definitely helped a great deal.
“This market is more like business as usual. We can no longer be order takers; we must sell.
“We will finish the year 10% behind budgeted revenues, and profits have slipped 5% with the decrease in revenues. However, we are planning a 13% increase in revenues for 2002. We have had considerably more business than we could produce during the past several years, with a waiting list of four months for a first appointment for most of that time.”
Jack Tenhulzen, CGR, president